Down but not out

Those online brand owners that operated outside of the clutches of the US tax system have paid the price of having not won any friends in the US Treasury Department - in stark contrast to their colleagues in the tobacco industry that pay enormous taxes and have been responsible for electing one or two US Presidents in the past.

This latest -- and predictable -- move illustrates the worst kind of naked protectionism in any free market witnessed this side of the Millennium.

What this isn't about is protecting adults from the vices of gambling. If it was, then Congress should have taken the opportunity to shut down every Las Vegas casino at the same time.

The online poker industry may certainly be down -- reflected in one of the biggest single-day falls in stock values in one sector ever seen on Wall Street. But it's not out.

In fact, the US Congress may have done the gambling industry a favour. It was becoming clear as daylight that the online poker industry in the US was built on a shaky legal foundation.

However, the remaining online poker brand survivors that aren't so dependent on the US market may be invited back to the US in the future, subject to certain conditions that may afford them a level of legal protection they don't enjoy at present -- in return for contributing to the US tax take, of course. Interestingly, bricks and mortar casinos could develop clicks and mortar models that keep on the right side of the law.

 And this may not be as far fetched as it sounds.

The internet is the ultimate free market -- despite the best efforts of national governments to control e-commerce activities. It's predicted that 70% of US gamblers will find ways round the new legislation by using alternative payment systems. For example, US gamblers could fund their bets using an electronic wallet which they could load up with cash using a money transfer or credit card.

So US legislators may have to concede in the future that in order to stem billions of dollars in lost taxes, they'll need to legitimise the way these online brand owners can do business. Perhaps a Democratic Party controlled House of Representatives and Congress will be more sympathetic to these arguments than the current regime. Certainly, time will tell.

In the meantime, the current turmoil will obviously shake out those weaker poker brand owners from the gambling market which in turn will drive increased traffic to other online gaming sites.

Consolidation in the gambling industry will result in fewer, more powerful online brand owners where the stakes will be just as high as they are today -- with the difference that the industry will have matured significantly in the wake of the US experience.

At Prism, we've recently provided strategic advice to an online gambling brand owner that's diversifying its strategy into fantasy league games. There are some obvious advantages in doing this:

• This type of entertainment and gambling activity is lawful and falls outside of the Unlawful Gambling Internet Act 2006
  
• Fantasy Leagues have a proven track record for leveraging the passion and excitement of sports such as football, F1 and basketball with millions of fans and gamers around the world
  
• Globally, the majority of sports fans under 45 years old are technically savvy, text and computer literate. This provides enhanced opportunities for communication and entertainment (including use of mobile)
  
• Fans and gamers spend considerably more time on interactive sites like www.youtube.com (30 minutes average) versus www.MTV.com (3 minutes average)
  
• Younger European consumers are turning away from traditional European sports and looking toward new emerging sports that offer other entertainment opportunities

Many sports governing bodies and leagues have a track record in working with online fantasy league sponsors and this segment of the gambling market is maturing very rapidly by avoiding the pitfalls of pure online gambling.
 
By following this route, online poker brand owners can use their considerable IT investments, technical know-how and customer insight in order to secure their place in an expanding gaming market.

Ardi Kolah is Chief Strategy Officer UK, Prism (part of WPP Group), a specialist sports sponsorship and marketing agency. He can be reached on 01483 441 008, mobile 077100 77941 and akolah@prismteam.com.

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